It’s time to take a serious look at Tim Cook’s leadership of Apple

On August 24, 2011, Tim Cook took over from Steve Jobs as the permanent CEO of Apple. He’s been in charge ever since.

So how’s he doing after five years?

Apple’s earnings report for the quarter that ended on June 30 beat Wall Street’s expectations, sending the stock up about 7% after-hours. Apple is still the most valuable company in the world, and earns more profit in a quarter than most other tech companies do in a year.

But at the same time, Apple’s revenue has started shrinking. Its most important product, the iPhone, is shrinking. All its other business lines, save one, are shrinking. And the company hasn’t had a new hit product since Cook took over.

First, let’s take a look at the stock price since Cook took over. It’s up over 90%. That’s a little better than the S&P 500, which is up 84% in the same time period. But in the five or so years before he took over, Apple stock rose a historic 460%, doing way better than the S&P.

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Yahoo Finance, Business Insider

Also, Apple now pays a dividend. It did not before Cook took over. But Apple’s cash hoard has also grown by about 3x since then, and now stands at over $230 billion.

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BI Intelligence

Cook should also be commended for turning Apple into a company with a strong public conscience. He’s made a huge commitment to turn Apple into a carbon-neutral company with actions like building massive solar plants, and has taken a public stance on social issues like gay rights. Steve Jobs never took those kinds of stands.

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Apple

But as far as the business itself goes, revenue growth has steadily fallen in the last five years, and went negative starting last quarter.

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BI Intelligence

Here’s the big reason why: iPhone shipments. They started declining year-on-year in the fourth quarter of 2015 and have been negative on an annualized basis ever since.

Meanwhile, Google’s Android has grown market share — mainly at the expense of platforms from BlackBerry and Microsoft. It’s worth noting that Android isn’t a unified platform like iOS. It has many different flavors, some of which are not controlled by Google.

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BI Intelligence

The iPad was supposed to be the next PC, but it didn’t work out that way. Unit sales have been shrinking on an annualized basis since 2014. This quarter continued the trend, although revenues were up thanks to the higher-priced iPad Pro.

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BI Intelligence

Then, there’s the Mac. Not much going on here compared with Apple’s other big hardware businesses, and sales are down on an annualized basis for the last three quarters. To be fair, though, the broader PC industry is in a state of decline.

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BI Intelligence

Here’s Apple’s revenue makeup by product. It’s barely changed. The company is still the iPhone company. Cook has failed to create a major new business in five years.

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BI Intelligence

Cook does talk a lot about “services” — things like the App Store, iCloud, and Apple Music. This quarter, he said that it was on track to be as big as a Fortune 100 company. And that’s the only segment that’s consistently growing. But its not exploding. It’s pretty much riding the iPhone’s installed base, which jumps by tens of millions of new phones every quarter.

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BI Intelligence

By the way, see that decline in “Other products” revenue growth? That’s the segment that includes the Apple Watch — the only major new hardware product introduced since Cook took over. It’s been completely immaterial to Apple’s business, and appears to be on the decline.

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BI Intelligence

One of Cook’s biggest successes has been getting Apple more entrenched in China. Revenues from China increased dramatically toward the end of 2014. But they started dropping again this year, and fell behind European revenues this quarter.

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BI Intelligence

And now, the most important and interesting slide of the bunch. This shows Apple’s spending on research and development by quarter since Cook took over.

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BI Intelligence

Interestingly, R&D spending as a percentage of revenue has increased pretty sharply in the last couple of quarters.

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BI Intelligence

Another way of looking at it: R&D spending keeps increasing even as revenue is no longer increasing.

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BI Intelligence

On the earnings call, Cook said about this R&D spend that “there is a quite of bit of investment for products and services that are not currently shipping or derivations of what is currently shipping. You can look at the growth rate and conclude there’s a lot of stuff we’re doing beyond the current products.”

So what’s Apple building with all that money? A car? A TV? A virtual reality headset? Smart home products? Health care products? All of these things have been reported, but Apple hasn’t said anything. It never does. The company prefers to announce products only when they’re ready to ship.

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REUTERS/Lucy Nicholson

Whatever it is, Tim Cook needs a hit to prove that he can grow new businesses, not just maintain existing ones. And investors are just going to have to take it on faith that Apple can deliver one. But how long will they wait?